Subscription billing and payments pioneer, Zuora, today announced its series E funding. The tranche of $50 million brings the company’s total capital investments to $132.5 million, much of it spent on sales and marketing. This convinces me that the hardest thing about being a disruptive technology is the cost of getting the idea into people’s heads. Salesforce spent a similar amount on sales and marketing while getting going and it’s reasonable to say that this is now the formula.
The really good news is that all of the company’s original investors have ponied up repeatedly to buttress the company and that includes individuals like Dave Duffield founder and co-CEO of Workday and Marc Benioff, co-founder and CEO of Salesforce.com as well as conventional venture companies like Benchmark Capital, Greylock Partners, Redpoint Ventures, Shasta Ventures, Tenaya Capital. You could say the smart money is on Zuora in anticipation of an IPO at some undisclosed point in the future.
All the cash gives the company a cushion that translates as an IPO someday but on its terms, there’s no rush. And the financial news and prognostications are nice but the underlying fundamentals say even more. They say that Zuora got it right in 2007 when the company identified the back office of subscription companies as the place most in need of help to make the model work. Co-founder and CEO Tien Tzuo had an intuitive understanding of the back office having seen first hand what a fast growing subscription company had to deal with each month getting its billing done right.
At Salesforce, Tzuo was chief strategy officer and, when he recognized the need, he built a sort of version one of what would become Zuora but he didn’t stop with billing at Zuora. The company now offers solutions for payments, or commerce, and finance but even more than this, it is innovating around the idea that the subscription business model is fundamentally different from the conventional product or service models we’ve lived with since the Medici invented double entry bookkeeping. Keeping an eye on the business model means the company will be able to innovate around the core idea for a long time and that’s a good thing.
Zuora makes its mark taking the broad view, which is in part why I like them. The response from the market and the venture community tells me they’ve struck a nerve and the fact that there are many other companies plying the same waters tells me this is important.
So, good on you Zuora. I am looking forward to speaking at their user conference in a couple weeks in San Francisco. It should be quite a party.